Block Energy takes another 20pc chunk of West Rustavi licence

Georgia-focussed exploration and production company Block Energy announced the acquisition of an additional 20% interest in the “highly prospective” 36.5 square kilometre West Rustavi licence in the country on Wednesday, increasing its working interest (WI) to 25%.

The AIM-traded firm sad West Rustavi had proven reserves and gross, unrisked contingent resources of 608 BCF gas and 37.9MMBbls of oil, and was located in the proven and prolific Kura Basin in Georgia.

Multiple gas discoveries had already been made in the Lower Eocence and Upper Cretaceous within the licence, which the board said lay on trend to the same play currently being targeted by Schlumberger on neighbouring licence, Block XIb.

The estimated cost of gas development and production at West Rustavi was said to be around $2.00/Mcf, which equated to operating netbacks of around $2.6/Mcf assuming a 75% working interest.

Georgia currently purchased its gas for $5.5 /Mcf, the board claimed.

Additionally, with a netback of $2.6/Mcf and conservative 50% recovery, the board said it believed that translated into a $600m project value to the company

Inspection of the existing well heads at West Rustavi was set to to start this week, preparing for the gas retest and side track programme.

Drilling and re-entry of initial targets was anticipated for the fourth quarter which - if successful - would transfer a “substantial” amount of the company's contingent oil and gas resources to reserves, and significantly advance the gas development strategy on the licence.

Block said acquisition of the additional 20% working interest was satisfied for a cash consideration of $0.5m, subsequent to $1m in new ordinary shares in Block priced at 4p per share, issued at the company's admission to trading on AIM on 11 June.

That formed part of the agreement with Georgian Oil & Gas to farm-in to up to a 75% working interest in the licence, the board explained.

It said West Rustavi's development was being conducted contemporaneously with the development of the producing Norio and Satskhenisi licences, which provided immediate production uplift on the commencement of field operations in the third quarter.

Existing oil production costs were approximately $25 per barrel, sold at Brent minus $10 per barrel, with the company stating a target of 900 barrels within 24 months .

Civil and field work at Norio/Satskhenisi, including the rehabilitation of facilities and the reactivation of wells at Satskhenisi, was set down to begin in mid-July following routine rig inspections starting next week.

“The value potential for West Rustavi is outstanding,” said Block Energy director Paul Haywood.

“With multiple discoveries and a 608 BCF 2C gross unrisked contingent gas resource and 37.9MMBbls of oil, the licence is of huge importance to the company going forward, in terms of development potential and value uplift.

“Increasing our interest in the licence is a key strategic objective for Block ahead of embarking on a development programme in the third quarter, which will unlock both value and production potential, as well as upgrade West Rustavi's resources to proven reserves.”

Haywood said that importantly, with estimated operational and development costs of $2.00/Mcf per barrel, the “huge” contingent gas resources were highly profitable and valuable considering the current gas purchase price in Georgia of $5.5 /Mcf.

"In tandem with this, our fully funded work programme, following our recent £5m raise, which is targeting a ramp-up in oil production to 900bopd, is also commencing in July,” he added.

“As with the gas at West Rustavi, oil production on our fields offers excellent netbacks, with the current cost of production of $25 per barrel providing net backs of $30-35 per barrel.”

Heywood said that, even if Block operated at half of its 900 bopd initial production target, its annual revenue potential would be approximately $6m - a level he said was equivalent to a “significant proportion” of the firm’s existing enterprise value.

“With this in mind, we are looking forward to a highly active period across all three licences commencing immediately.

“I believe we have the foundation, work programme and news flow to support a significant rerating of our share price.”